Central government employees now have access to enhanced investment options within the National Pension System (NPS) and Unified Pension Scheme (UPS), with the introduction of Life Cycle 75 (LC75) and Balanced Life Cycle (BLC) investment options. This decision, effective immediately, allows for a greater equity allocation of up to 75%.
The move comes in response to demands from central government employees for investment choices similar to those available to non-government subscribers. The Ministry of Finance stated that this increased flexibility will empower employees to manage their retirement savings based on their individual preferences and risk appetite.
Under the NPS and UPS, central government employees can now select from a range of investment options, including:
- Default Option: A 'default pattern' of investment defined by the Pension Fund Regulatory and Development Authority (PFRDA).
- Scheme G: A conservative option with 100% investment in government securities, ensuring low-risk, fixed returns.
- LC-25: A life cycle fund with a maximum equity allocation of 25%, tapering gradually from age 35 to 55.
- LC-50: A life cycle fund with a maximum equity allocation of 50%, also tapering gradually from age 35 to 55.
- BLC (Balanced Life Cycle): A modified version of LC-50, where equity allocation tapers from age 45, allowing employees to stay invested in equities for a longer period if desired.
- LC75: The newly introduced life cycle fund with a maximum equity allocation of 75%, tapering gradually from age 35 to 55. By age 55, the equity allocation in LC75 will be 15%.
The LC75 option provides the highest equity exposure, offering potentially higher returns for those with a greater risk tolerance and a longer investment horizon. The tapering of equity allocation with age in LC75 and BLC ensures a glide path mechanism, which protects against substantial market fluctuations as retirement nears. By the time an employee reaches 55 years of age, equity in BLC will reduce to 35%.
These expanded "auto choice" options aim to deliver more diverse retirement planning options, reflecting the varied risk-return preferences of government employees. Employees can now structure their retirement savings according to individual financial goals and risk assessments, promoting more informed planning. This decision aligns central government employees with the smart investment choices available to their non-government counterparts.
Experts recommend consulting with a financial advisor before making investment decisions.
